Ladies and gentlemen, thank you for attending today. We will now begin the conference call for KT&G's 2025 Fourth Quarter and Full Year Earnings Report. After the presentation from KT&G, there will be a Q&A session with the participants to the call. If you wish to participate with a question, please press star and the number one . Ladies and gentlemen, I am Aaron Lee, Head of Investor Relations at KT&G. Thank you for attending KT&G's 2025 Fourth Quarter and Full Year Earnings Report. Today's presentation will be provided in English in simultaneous interpretation, and the Q&A session in consecutive interpretation. The materials can be found via the live webcast screen or downloaded from the company website.
Please allow me to introduce the management team in attendance today. With us we have Mr. Sang-hak Lee, Chief Finance and Operating Officer, Mr. Young-chan Yoon, Chief Strategy Officer, Mr. Chang-gu Heo, Chief Marketing Officer, Mr. Min-seok Kwon, Chief of Global Business, Mr. Dong-pil Kim, Chief of NGP, Mr. Sang-jun Woo, Chief of Real Estate Business, Mr. Yong-beom Kim, Head of Finance Office, and Mr. Tae-won Kim, Chief of Future Strategy at KGC.
Please be advised that the earnings we are about to present today have yet to be audited by the outside auditor, therefore are subject to change in the audit process, and any forward-looking information discussed in the call today may differ from the actual results to be reported in the future. With that, we will begin the 2025 fourth quarter and full year earnings report. Today's presentation consists of key items from our consolidated results and earnings for each business segment. After the presentation, we will proceed to Q&A with the management team in attendance.
Please allow me to invite Mr. Sang-hak Lee, our COO and CFO, to share with you board resolutions on shareholder returns, key performances in 2025, and the outlook for 2026.
Ladies and gentlemen, I am Sang-hak Lee, COO/CFO of KT&G. I deeply thank everyone for joining KT&G's 2025 Fourth Quarter and Full Year Earnings Report. Please allow me to first share with you the agenda on shareholder returns resolved at the board today. Considering the company's business performance and cash flow, our BOD has resolved to pay out year-end dividends of KRW 4,601 per share, which is KRW 401 higher than last year. Annual DPS, including the already paid interim dividend, will rise 11.1% YoY, with payout ratio reaching 58%. The year-end dividend will be finally confirmed at the AGM to be hosted in upcoming March of this year. Next is share cancellation.
The board also resolved to cancel 3.3 million shares from our treasury shares held, making our aggregate share cancellation 14.3% of outstanding shares since 2024. The cancellation will be immediately executed, with the amount of treasury shares held reduced to 9.5% of outstanding shares after the cancellation. I'd like to move on to our key performances in 2025. Upon focusing company-wide energy on enhancing core competitiveness around the global business, we recorded highest-ever earnings with 2025 revenues surpassing KRW 6.5 trillion for the first time. We also met a historic transition point where our overseas CC revenues surpassed our domestic CC revenue. As we reinforced our local direct business model moving away from an export-based model, both consolidated revenue and operating profit broke previous records. Thanks to robust growth in our core business, both our operating profit and operating profit margins grew, putting our group's profitability on an uptrend.
Based on such performance, we executed dividends at the scale of KRW 627.4 billion and KRW 560 billion of share buyback and cancellation, totaling KRW 1.1874 trillion cash return, reaching 109.8% in total shareholder return ratio. Ultimately, we recorded 103.3% in aggregate return ratio since 2024. Thanks to solid earnings and strong willingness for shareholder returns, KT&G's value is in a new limelight. Our share price that started off 2025 from KRW 107,100 has steadily gone up to the end of the year at KRW 142,100, and as of February 4, it broke the historic record of KRW 161,801, proving the successful re-rating of our corporate value. Based on such significant results in 2025, we intend to continue our profit-led growth and best-in-class shareholder return policy in 2026.
To start with our 2026 business performance outlook, we are aiming for 3%-5% growth in revenue and 6%-8% growth in operating profit for the year as we continue our profit-based management. Currently, our global business is on a vaguer track, and while we saw impact from one-off costs last year, we expect this to be very limited for 2026. Depending on how our performance goes during the year, when we believe there is confidence to revise up the outlook, we will communicate with the market immediately. For our shareholder return plans, at the baseline, we will execute best-in-class shareholder returns targeting more than 100% in total shareholder return ratio. While we continue our upward trend in DPS, we will be repurchasing shares worth KRW 300 billion or higher in the year to be canceled immediately after acquisition.
When we combine this with the cancellation of existing treasury shares that we plan to do, we will be canceling more than 4% of our outstanding shares in the year 2026. Moreover, we are also planning to maintain the Plus Alpha program utilizing funds from non-core assets. KT&G will continue to do its utmost, along with the Board of Directors, for global business management to maximize our corporate and shareholder value. I ask for your unwavering support for the company. Thank you. And now we will move on to details of our 2025 Q4 and full year earnings in page six. Starting with Q4 consolidated revenue, strong results in global CC and real estate drove our quarter revenue up by 10.1% to KRW 1.7137 trillion.
Despite recognizing one-off costs of KRW 13 billion related to voluntary retirements in the fourth quarter again after the first quarter, the quarter's operating profit increased by 17.1% to KRW 248.8 billion. Net income was impacted by currency fluctuations in the quarter, with lower currency-related non-operating profits driving down income by 15.7% to KRW 274.2 billion. EPS was down by 15.3% YoY at KRW 2,472. EBITDA, on the other hand, grew by 17.7% to KRW 325.8 billion, with EBITDA margins at 19%. Next to our Full Year consolidated earnings in page seven. Robust growth in the tobacco business led by global CC and improved earnings in the real estate segment led annual revenue up by 11.4% to KRW 6.5796 trillion. Annual operating profit was up 13.5% to KRW 1.3495 trillion. After adjusting for the KRW 70 billion wage-related costs, operating profit is at KRW 1.4198 trillion, 19.4% higher YoY.
Net income, also impacted by currency fluctuations in the year, saw lower currency-related non-operating profits driving income down by 6.1% to KRW 1.0944 trillion. EPS for the year was down 3% to 10,143 KRW. EBITDA was up 14.1% to KRW 1.6416 trillion, with EBITDA margins at 24.9%. Next to key factors behind movement in earnings in page eight. Starting with the fourth quarter, Q4 tobacco business benefited from product mix improvement and pricing in the amount of KRW 35.5 billion and KRW 15.7 billion from dollar appreciation against the won. The volume decline due to advanced sales in domestic CC to the previous quarter led to a KRW 43.8 billion decline, and cost variance, including one-off costs, a KRW 23.2 billion decline. All in all, tobacco operating profit was reduced.
While there was a KRW 0.5 billion decrease in HFF profits, the real estate business drove a KRW 56 billion increase, leading to a 17.1% growth in consolidated operating profit in the quarter. For the full year, cost variance in tobacco, including wage-related one-offs, was a -KRW 313.5 billion, while product mix improvement and pricing added KRW 196.8 billion. FX, a KRW 74.7 billion impact, and higher volumes in global CC and NGP, KRW 114.8 billion plus. Tobacco business combined saw KRW 72.8 billion growth in profit for the year. Profits improved in HFF and real estate by KRW 4.6 billion and KRW 86.5 billion, respectively. As a result, consolidated operating profit increased by 13.5%. Let us move on to performance by business segment in page nine. First on the tobacco business.
Tobacco business revenue was supported by global CC that reached record-high revenue and solid results across the NGP business to rise 4.5% in Q4 to KRW 1.0564 trillion, and on annual basis, rising 11.8% to KRW 4.3672 trillion. Q4 operating profit was impacted by one-off costs related to voluntary retirement, same as the first quarter, and reduced revenue from domestic CC, a big profit contributor, to decline year over year. However, annual operating profit increased thanks to stronger profitability from global CC that demonstrated a 53.8% operating profit growth YoY. We continued our global expansion in the business as quarter and annual share of global sales increased thanks to robust sales in global CC. Zooming in on each segment of the tobacco business in page 10. Beginning with domestic CC.
Q4 revenue saw temporary fluctuation due to volume movement across quarters caused by the advanced demand in Q3 before the Chuseok holiday. Performance on an annual basis is still keeping to the previous trend. Domestic cigarette market volume in 2025 dropped 5.1%, showing a steeper decline versus the previous year. However, we continued to launch new products catering to consumer needs, sustaining our market share growth by 0.6 percentage points to 67.3%. As a result, we were able to meaningfully mitigate the volume and revenue reduction against a structural market volume decline. Moving on to global CC in page 11. Global CC continued robust performance in Q4 as ASP growth was sustained in double digits. We expanded our presence to 145 countries in the year with our active penetration into new markets, breaking the record again for highest-ever volume.
Adding the double-digit growth in our ASP, the revenue grew by 29.4%, operating profit by 53.8%, recording historical highs in the bottom and top lines at the same time. Next to NGP in page 12. The NGP business, despite the supply chain disruption for the overseas market in the first half, continued to expand revenue as a result of new devices stick launches domestically and globally. Let's look at some details of the NGP performance in page 13. Domestically, while the penetration of the category continues to expand, we maintain the upward trend of market share through new product launches despite intensifying market competition. Internationally, launch of upgraded devices in core markets like Russia and new stick products led to higher stick volume for the full year against the previous year. Next to HFF in page 14.
In 2025, health functional food revenue was impacted by subdued consumer sentiment driving down demand and continued portfolio restructuring towards high-profit channels and products, a decline versus the previous year. However, our profit-centered strategy, including more efficient marketing execution, led to higher operating profit for the year. Share of global sales declined due to lower overseas revenue, especially in Greater China. Going into the specifics of the domestic and overseas performance in page 15. In domestic revenue by channel, high-profit strategic channel revenue grew especially online, while offline revenue declined in large distribution channels, including department stores and supermarkets, due to restructuring of low-profit channels. Overseas revenue declined overall as we reduced less efficient promotions in the business. Lastly, on real estate in page 16. In real estate revenue, higher construction rates in development projects like Anyang, Mia, and East Daejeon led to higher revenue recognition in the year.
In the Seocho SPC subsidiary project, profits were recognized at once in Q4, leading to a jump in overall revenue. On top of such revenue increase in development and subsidiary projects, infrastructure costs from the Suwon development project were greatly reduced, leading to significant growth in operating profits. This concludes the KT&G 2025 Fourth Quarter and Full Year Earnings Release. We will now proceed to Q&A.
[Foreign language] Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. [Foreign language] . The first question will be provided by Young-hoon Joo from NH Investment & Securities.
Please go ahead with your question.
[Foreign language]
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Thank you for taking my question. I would like to ask you three questions. The first one is, you shared with us what your 2026 guidance is. Can you also give some color as to what strategies you will be employing to achieve that guidance? Second question, regarding including the overseas new production line, I understand that you've put in quite a bit of effort to optimize your production. Can you share with us an update and also at the same time share with us an outlook for 2026, including any plans for expanding the CMO initiative? Third question, could you also provide a little more information as to what your new launch plans are for your NGP business, for both domestic and global?
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Responding to your question, this is Sang-hak Lee, I'm the Chief Finance and Operating Officer. Now, you asked about key strategies behind achieving the 2026 guidance. First, if I may talk about our global CC business. For Indonesia and Eurasia region, we will be expanding coverage through revamping the distribution structure and stabilizing such distribution network. And also, we will continue on with new market expansion strategies. At the same time, we will continue to drive up the ASP, the selling price, in order to grow both the volume and the profitability aspect of the business. Moving on to NGP business, we are continuously expanding the R&D efforts and investment into NGP business. And also, by the end of the year, we are planning to launch innovative platforms for heat-not-burn products, bringing together and leveraging our internal and external capabilities.
We will also focus on expanding the NGP category as a whole around nicotine pouch in countries where we see high growth potential. For health-functional food business, we will strengthen strategic channels, which include travel, retail, and online. And also, we will localize global product portfolio so that we may sustain an uptrend in bottom line. Last but not least, in terms of manufacturing, we will be completing end-to-end integration by the end of the year, which will give us a stronger cost competitiveness and help us achieve the committed targets that we have just shared.
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Responding to your question, I am CSO, Chief Strategy Officer Young-chan Yoon. I will respond to your question about our production optimization as well as the outlook in that regard. First, in terms of our new plants in Kazakhstan and Indonesia, No. 2 and No. 2 plants were completed last year, and we have finished building up a solid global production base. Kazakhstan plant will be the supply center for CIS countries, so we're very quickly increasing utilization and production yield. For Indonesia, No. 2 plant, which is the biggest in size globally, we will start production during the first half of the year. Now, through such production optimization, by 2027, we will produce more than 50% of the total volume overseas. And by localizing materials and sources, we will maximize cost efficiency as well.
Just to talk about our CMO expansion plan, CMO collaboration is actually one pillar behind the production optimization and flexibility. Based on successful collaboration with Altria last year for regular high TAR products, just as we were able to implement a successful collaboration, we will continue to expand the CMO model this year so that we can bolster cost competitiveness.
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Responding to your question about our heat-not-burn rollout for new platform and our plans for direct business, I am Dong-pil Kim, Chief of NGP Business. Now, first off, relating to the first part of the question, we expect to be able to bring a new platform where there is a breakthrough technology adoption before the end of the year. This will be a platform and product where we would have significantly improved on the convenience of use, and we expect this will be a good product to acquire new consumers into our products. So our plan is to roll it out for the domestic market first and then eventually gradually expand out into the global market.
Responding to the second part of your question about the direct business arrangement, recently we have decided in consultation with PMI that for our standalone product platforms for lil HYBRID and lil AIBLE, we have gained the commercialization authority and right to do commercialization in the global markets. So we will eventually first target countries where we have our subsidiaries, such as in regions like Asia-Pacific and CIS countries, and where we feel that there is high growth potential. Those will be our first-off countries that we'll target and enter into. At the same time, we will be in the process of finding a new commercialization partner. So depending on how the market regulation and approval process proceeds, we believe that even at the earliest date, we may be able to do a direct release in the global market before the end of the year.
[Foreign language] . The following question will be presented by Hee-hyung Choi from UBS. Please go ahead with your question.
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Thank you for taking my question. I would like to ask you two questions. First, I would like to understand with regards to the spot prices for the raw materials and the materials used to manufacture your goods, what is the current trend like, and how do you foresee it will play out in 2026? From a long-term perspective, do you believe that the cost for the raw materials will stabilize as we go further out into the future? Second question is, in recent two years, we've seen the ASPs for your global CC business continue to show an upward trend. What is the price gap that you currently have with your competitors? And in 2026 and 2027 onwards, to what extent do you think that that ASP could continue to go upwards?
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Responding to your question about the recent cost trend and the cost outlook for 2026, I am Kim Yong-beom, Head of Finance. Now, the input costs have increased as raw materials, which were purchased back in 2024, were used in 2025. But NTM costs did stabilize, and with processing cost savings, cost of CC manufactured was kept flat year-over-year. And NGP cost savings were also achieved versus last year. And with the sourcing cost for tobacco leaf continuing its decline in Q3 and Q4 of last year, we expect input costs will stabilize and profitability to improve. Now, for this year, we will sustain and speed up such cost optimization trend, and we will also expand global sourcing so that we could save on material costs and leverage off of lower labor costs overseas so that we can achieve meaningful savings in production.
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Responding to your question about our global CC, ASP upward trend and the outlook for 2026 and 2027, I am Min-seok Kwon, Chief of Global Business. Now, through a very optimized pricing strategy that catered to each of the global markets, starting from 2024 for two years consecutively, we were able to achieve a double-digit growth in terms of ASP. In particular, if you look at the Asia-Pacific region, we increased the export unit price, and in countries like Taiwan and Kazakhstan, we converted to a direct business, and in Russia, we changed our distribution partner, which were key structural changes that actually drove meaningful growth.
In 2026, we foresee that across all of the regions, we will be able to sustain a stable volume growth, and also in new markets such as Africa and Latin America, we will increase prices and improve our product mix so that we may maximize ASP growth so that we can step up the size of profit. Up to 2027, we expect such ASP-driven growth will continue.
[Foreign language] . The following question will be presented by Jae-hyung Choi from HSBC. Please go ahead with your question.
[Foreign language]
Good afternoon. Thank you. You shared with us your guidance for this year, and I see that in light of the revenue and operating profit growth that you have achieved last year, it seems like the guidance is quite conservative. Is that because you are quite conservative in forecasting your revenue and operating profit from your property, the real estate business? Can you give us a little more color on what you foresee and what you project for your real estate business going forward? The second question is, in terms of the non-core asset sales program, I would like to understand at this point to what extent has there been progress, and in 2026, how much of such non-core asset divestment should we expect?
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This is Sang-hak Lee. I'm the Chief Finance and Operating Officer. Responding to your question on guidance, and I will also talk about the shareholder return question as well. Yes, in the opening presentation, I talked about the previous years of financial performance as well as guidance for 2026. And as was communicated in previous occasions as well, the company is focusing on quality-driven growth rather than volume-driven growth. And in 2026, we will continue to have a strong focus on profitability with profitability-driving growth going forward. And so the guidance that we have come up with is based upon that profitability-centric approach on a year-over-year basis in terms of the revenue and operating profit guidance that we have just shared. And last year, there were one-off expenses that were incurred, and in 2026, there may be a limited impact.
Especially considering the fact that our global business is sailing smoothly, we are at a good positioning. Having said that, if you look back previous year during the second half of the earnings call, as you understand, we actually upward adjusted the guidance that we communicated at the beginning of the year. We will closely look at how our performance and earnings actually pan out, and if we find that there is an upside potential, we will come back to the market and communicate to you any changes that's necessary.
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Moving on to the other parts of the question on the sale of the non-core assets and the size thereof as well as our shareholder return plan going forward. As I've mentioned at the very beginning of the year, for this year, the two key pillars under shareholder return would be dividend and share buyback and cancellation. We've kept our promise that our shareholder return policy is going to be industry top, and we've kept that promise, and we will continue to be committed to that promise going forward as well. First, in terms of achieving the total shareholder return rate, TSR, of above 100%, the key to this is DPS, and for this year as well, we will continue to have a progressive approach in expanding the amount of dividend that is actually paid out. Also second point is share cancellation.
I have mentioned that we've decided to cancel the treasury shares that we currently own, and continuing on from that. There will also be about KRW 300 billion, the amount that will be additionally canceled. Now, whenever we feel that compared to our intrinsic value that there is undervaluation vis-à-vis the market value, if we feel that that is the case, we will and we could make an additional decision to make additional share buyback during the year. In terms of how we are going to finance and fund that share buyback, one way would be through the proceeds of the sale and the divestment that we make on our non-core assets. As per the plans relating to the sale of the non-core assets, we are currently quite faithfully implementing the corporate value enhancement plan, which we announced back in 2024.
Also we have sold more than 50% of the non-core assets by the end of 2025. Through this asset liquidation process, we have conducted in total about KRW 420 billion and used that to return back to the shareholders. For this year as well, we will continue on with that monetization of our non-core assets, and we will use that proceeds for returning back to the shareholders. Now, having said that, with regards to the planning and the timing of the assets to be sold, we will closely monitor what the capital market situation is and make an appropriate determination as to the size to that shareholder return and the timing. Once we make the decision, we will immediately come back to you and communicate with the market.
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Responding to your question, I'm Chief of Real Estate, Sang-jun Woo. For the real estate development project of Anyang, Mia, and Dongdaejeon, which actually drove good revenue, that whole project is going to come to an end in 2026 and 2027. We will continue to tap into new business opportunities, particularly the apartment complex project at Cheonan, and make use of idle properties to continue to make up for the P&L gap that may take place. We will also continue to sell off the non-core assets, and we'll focus on the fundamentals of the business.
[Foreign language] . The following question will be presented by Sang-hoon Cho from Shinhan Investment & Securities. Please go ahead with your question.
[Foreign language]
Thank you for taking my question. I am Sang-hoon Cho from Shinhan. Would like to first understand what your business plans are for your nicotine pouch business and your vapor business. And second question relates to health and functional food business. You've had a clear focus on profitability, so you've seen a decline in top-line revenue but were able to improve on profitability. Will you continue to stick to this approach, and also what are your strategies to grow your volume, both domestic and global?
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Responding to your question about nicotine pouch and our vapor business, I'm Kim Dong-pil, Chief of NGP. The company's strategy is to expand the category for nicotine pouch and vapor products from its current standalone NGP business structure that is focused on HNB, the heat-not-burn products. If you look at nicotine pouch products, we will bring together the capabilities that KT&G has and what ASF has, which is a company that we acquired last year. ASF is a company that is based in Nordic countries, basically utilizing those capabilities to expand nicotine pouch business across core markets, including the U.K. For the vapor business, we are going to optimize our capabilities, both internal and external, in building up the portfolio, and also we'll be fully mindful of changes in the regulatory environment, particularly regarding the ban on the disposables.
And so we will take mostly the CSV type products to enter into and tap into the global markets. So we will very quickly expand the markets where we play in so that we can solidify our positioning in the vapor segment.
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Responding to your question about our strategy focusing on profitability, whether that strategy will continue in 2026 and what our both global and domestic growth strategies are, this is Tae-won Kim. I'm Chief of Future Strategy at KGC. Now, despite the decline in top-line revenue in 2025, we were able to employ strategic operations having a strong focus on profit and margin and were able to drive an annual expansion in operating profit, which was quite meaningful. In 2026, we will continue to hold onto such an approach, having a strong focus on profit. So for the domestic market, we will focus our efforts around strategic channels, which include online and travel retail. Also we will roll out high-margin, differentiated product lineup so that we can drive further growth.
In terms of the global market, through strategic alliances and M&As, we are going to expand our market coverage, and we will build out a customized product portfolio that best fits the local requirement. Also we'll strengthen our R&D capabilities so that we can strongly push forward with our scientific benefits. Through these efforts, we are going to achieve a turnaround in top-line revenue in 2026 at the same time as well as enhancing profitability.
[Foreign language] . The last question will be presented by Eun-hye Ryu from KB Securities. Please go ahead with your question.
[Foreign language]
Thank you for taking my question. Just have one question. On your Q4 net profit, the reason why we see the variance there, and what is the company's FX sensitivity?
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Hello. This is Head of Finance Office Kim Yong-beom. Regarding the variability or the changes in the net profit for 2025, basically if you look at FY25 net profit, it dipped 6.1% year-over-year despite an increase in operating profit, which is due to lower FX valuation gains due to the fluctuation in the exchange rate. Valuation gain for FY25 dropped notably year-over-year due to period-end FX rate fluctuations. So if you look at FX rate as of end of 2024, it was 14% higher versus 2023, which led to sizable valuation gain, while FX rate end of 2025 turned negative to 0.4%, significantly lowering FX valuation gain. Now, on the FX sensitivity for 2026, KRW 10 movement in $1 cross has KRW 4.6 billion impact on annual operating profit, and we estimate about KRW 13.4 billion impact on non-operating accounts, including FX translation and valuation.
To counter such volatility, we're using FX-forward derivatives and are adjusting the timing of foreign currency inflow and outflow in order to hedge risks all around.
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Thank you very much. That ends the earnings conference call for Q4 of 2025 of KT&G. Thank you, everyone, for joining us. I wish you all good health and prosperity. If you have any unanswered questions, please feel free to contact us. Thank you.